School of Distance Education

MODULE V
DISTRIBUTION
5.1 MEANING AND DEFINITION
Creating a customer is a major task of marketing but delivering the goods to the customer
so created is the most critical task. Physical distribution is a marketing activity that concerns the
handling and the movement of goods. It is a major component of marketing mix and cost area of
business.

In the words of Phillip Kotler, “Physical distribution involves planning, implementing and
controlling the physical flow of materials, and final goods from the point of origin of use to meet
customer needs at a profit.”

It involves the coordination of activities to place the right quantity of right goods at the
desired place and time. Like any other marketing mix component, physical distribution has two
broad objectives to attain, namely, consumer satisfaction and profit maximization. Physical
distribution is not only a cost but a powerful tool of competitive marketing.

Meaning of Channel of distribution:

A channel of distribution is an organized network or system of agencies and institutions,

which, in combination, perform all the activities required to link producers with users and users
with producers to accomplish the marketing task.

According to Phillip Kotler,”It is a set of independent organizations involved in the process

of making a product or service available for use or consumption.” Thus, a channel of distribution is
a path way directing the flow of goods and services from producers to consumers composed of
intermediaries through their functions and attainment of the mutual objectives.

Difference between Physical distribution and Channel of Distribution

These are the two component of the distribution system. Physical distribution is a broader
concept, it includes channel of distribution. Physical distribution is concerned with transportation,
storage, warehousing, etc, where as channel of distribution refers to the process or intermediaries
through which goods move from the producer to the ultimate consumer.
5.2 ROLE/IMPORTANCE OF PHYSICAL DISTRIBUTION SYSTEM
The physical distribution system has a definite role. It provides a new orientation for
marketing. The following points will reveal the role of physical distribution system.
1. Creation of Utilities: Creation of or addition of utility is addition of value to a thing.
The major component of physical distribution are transportation and warehousing. It is
transport system that creates place utility, making goods more useful by bringing them
from the places where they are not needed. Warehousing system is known for creating
time utility.
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2. Improved consumer services: Customer service in physical distribution system consists

of providing products at the time and location corresponding to the customer needs. High
level of customer satisfaction can be possible through a viable distribution system that
takes into account the factors that affect customer service such as time, dependability,
communication etc.
3. Cut in distribution cost: The prices paid by the customer consists of not only production
costs but also delivery cost. Delivery cost can be minimized by systematic planning in
inventory levels, warehousing location and operation, transportation schedule and modes,
material handling, order processing and communication.
4. Increased market share: There are definite ways in which an efficient physical
distribution system can contribute towards the objective of increased market share. It is
possible by decentralizing its warehousing operations, devise the combination of efficient
and economic means of transport, planning inventory operations to avoid stock outs etc.
5. Price stabilization: It can contribute considerably to the attainment of price stabilization.
It is the best use of available transport and warehousing facilities that can bring about
amicable and matching adjustment between the demand for and supply of goods thus
preventing price fluctuations.

5.3 LEVELS OF CHANNEL

This indicates the number of intermediaries between the manufactures and consumers. Mainly
there are four channel levels. They are:

1. Zero level channel:- Here the goods move directly from producer to consumer. That is,
no intermediary is involved. This channel is preferred by manufactures of industrial and
consumer durable goods.

2. One level channel: In this case there will be one sales intermediary ie, retailer. This is
the most common channel in case of consumer durable such as textiles, shoes, ready
garments etc.

3. Two level channel: This channel option has two intermediaries, namely wholesaler and
retailer. The companies producing consumer non durable items use this level.

4. Three level channel: This contains three intermediaries. Here goods moves from
manufacture to agent to wholesalers to retailers to consumers. It is the longest indirect
channel option that a company has.

FACTORS DETERMINING THE LENGTH OF THE CHANNEL:

The following factors will determine the length of the channel of distribution.

1. Size of the market: The larger the market size, longer the channel. Conversely the
smaller the market, smaller the channel.

2. Order lot size: If the average order lot size is small, it is better to have a longer channel
and vice –versa.
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3. Service requirements: If the product and market require a high level of service, and it a
major factor in the buying decision, it is better to keep a shorter channel.

4. Product variety: If a wide variety of the same type of product available in the market,
then it is advisable to select a wider channel.

5.4 TYPES OF INTERMEDIARIES

Marketing intermediaries are the individuals and the organizations that perform various
functions to connect the producers with the end users. These middlemen are classified into three:

1. Merchant middlemen, who take title to the goods and services and resell them.
2. Agent middlemen, who do not take title to the goods and services but help in
identifying potential customers and even help in negotiation.
3. Facilitators, to facilitate the flow of goods and services from the producer to the
consumer, without taking a title to them. Eg. Transport companies

MERCHANT MIDDLEMEN
Merchant middlemen are those who take title to the goods and channelize the goods from
previous step to the next step with a view to making profit. They buy and sell goods in their own
risk and the price for their effort is profit. They act as an intermediaries between producers and
consumers. These merchant middlemen are broadly classified into wholesalers and retailers.

Wholesalers:
Wholesaler is a trader who deals in large quantity. He purchases goods from the producers
in bulk quantity and sell it to the retailers in small quantity. According to American Management
Association, “ wholesalers sells to retailers or other merchants and/or individual, institutional and
commercial users but they do not sell in significant amounts to ultimate consumers.”

Functions of wholesalers
1. Assembling and buying: It means bringing together stocks of different manufactures
producing same line of goods, and making purchases in case of seasonal goods.
2. Warehousing: The warehousing function of the wholesalers relieves both the producers
and the retailers from the problem of storage.
3. Transporting: In the process of assembling and warehousing, the wholesaler do
undertake transportation of goods form producers to their warehouse and back to retailers
4. Financing: They grant credit on liberal terms to retailers and taking early delivery of stock
from the manufacturers to reduce their financial burden.
5. Risk bearing: Wholesaler bear the risk of loss of change in price, deterioration of quality,
pilferage, theft. Fire etc.

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6. Grading, Packing and packaging: By grading they sort out the stocks in terms of different
size, quality shape and so on.
7. Dispersing and selling: Dispersing the goods already stored with them to the retailers.
8. Market information: Finally providing the market information to the manufactures

Services of wholesalers:
A. Services to Manufacturers:
1. The wholesaler helps the manufacture to get the benefit of economies of large scale
production.
2. Wholesalers helps the manufactures to save his time and trouble by collecting orders
from large number of retailers on behalf of the manufactures.
3. The wholesaler provides market information to the manufactures which will helps him
to make modifications in his product.
4. The wholesaler buys in large quantities and keeps the goods in his warehouses. This
relieves the manufacturer the risk of storage and obsolescence.
5. The wholesales helps to maintain a steady prices for the product by buying the product
when the prices are low and selling when the prices are high.
B. Services to Retailers:
1. He gives valuable advices to the retailers on his business related matters.
2. He helps the retailer to get the goods very easily and quickly.
3. He render financial assistance to the retailer by granting credit facilities.
4. The wholesalers bears the risk associated with storage and distribution of goods to a
certain extend.
5. The wholesaler helps the retailers to keep price steady.
5.5 RETAILERS:
The term ‘retail’ implies sale for final consumption. A retailer is the last link between
final user and the wholesaler or the manufacturer. According to Professor William Standton,
”retailing includes all activities directly related to the sale of goods and services to the ultimate
consumers for personal or non business use.” In other words retailer is one whose business is to
sell consumers a wide variety of goods which are assembled at his premises as per the needs of
final consumers. In India, Most of the Indian retail outlets are owner managed and have few or
no sales assistant. Most important issues of these outlets are those of inventory management and
funds management.

Functions of retailers:

1. Buying and Assembling:- A retailer buys goods from the best and most dependable
wholesalers and assemble the goods in a single shop.
2. Warehousing: It helps the retailer to ensure adequate and uninterrupted supply of goods
3. Selling: A retailer sells the products in small quantities to the needy consumers.
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4. Risk bearing: It is the basic responsibility of a retailer to bear the risk arising out of
physical deterioration and changes in prices.
5. Sales promotion: Retailer undertakes some sales promotion through displaying of goods
in the shop, distribution of sales literature, introduction of new product etc.
6. Financing: A retailer granting credit in liberal terms to the consumer and it helps the
consumers a lot to purchase the required goods.
7. Supply of market information: As being in close and constant touch with the
consumers, a retailer can supply the market related information to the wholesalers and
manufactures at the earliest.
8. Grading and Packing: Retailers undertake second round grading and packing activities
left by the manufacturers and wholesalers.

Services rendered by Retailers:

A retailer render a number of services to the manufacturers, wholesalers and to the final users.
These services are outlined below:-

A. Services to the manufactures and wholesalers:

(1). Providing information: Retailer do provide the wholesalers and manufactures the
information about the latest consumer movements and it helps the manufactures to
produce goods according to the needs of consumers.
(2) Looks after the distribution process: A retailer, in general, looks after the entire
distribution process and it helps the manufactures to concentrate on production.
(3 )Creation of demand: By giving local ad and display of goods, retailers helps to create
demand for the goods.
(4)A big relief: A retailer gives a relief to the manufacturers and wholesalers from the
problem of selling goods in small quantities.

B. Services to the consumers:

(1)No need to store goods: A retailer holds goods on behalf of the customers at a
convenient place and in convenient lot. Hence, the consumer need not buy and stock in
large quantity.

(2)Largest choice: Retailers collects products of different manufactures and it enables the
consumers to have a largest choice at cost, quality and so on.

(3) Providing information: A retailer supplies information about the introduction of a

new product in the market and its features.

(4)Granting credit: Most of the retailers granting credit facilities to regular customers.

(5) After sale services: In certain cases a retailer provides after sales services to the
ultimate consumers to ensure the customers shop loyalty.

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TYPES OF RETAILERS

The retailers can be classified in to Small scale retailers and large scale retailers:

1. Small Scale Retailers: It includes

(a) Unit stores: These are the retail stores run on proprietory basis dealing in general stores or
single line stores.

(b) Street traders: They are the retailers who display their stock on foot paths or the side walks
of the busy street.

(c) Market traders: These retailers open their shops on fixed days or dates in specified areas.
The time interval may be week, or a month.

(d) Hawkers and pedlars: This type of retailers do not have any fixed place of business. They
carry goods from one place to another. They keep on moving from locality to locality.

(e) Cheap-jacks: Cheap jacks is retailer who has fixed place of business in a locality but goes on
changing his place to exploit the market opportunities.

2. Large scale retailers: It includes

(a)Departmental stores: A departmental stores carries several product line, invariably all that is
required by a typical house hold. It includes food, clothing, appliances, other house hold
goods, furnishings and gifts etc. It is a central location and a unified control. In a typical
department store each product line is managed independently by specialist buyers.

(b)Multiple shops: It is a chain of retail store dealing in identical and generally restricted range
of articles operating in different localities under central ownership and control. It works on
the principles of centralized buying and administration and decentralized selling. It is also
known as chain store.

(c)Mail order houses: Here, the customers do not visit the seller’s premises and there is no
personal inspection of goods before the purchase. Orders are received from customers through
post and the goods are also sold through post. The transaction is settled through postal
medium. Eg. Leather goods, ready made garments etc.

(d)Consumer co-operatives: These are the stores owned by a group of consumers themselves on
co-operative principles. Here the store purchasing in bulk quantity and sells it to the consumers
at a reasonable price. It is formed to eliminate the exploitation of middlemen.

(e)Super markets: This is a large, low cost, low margin, high volume, self service operation
designed to serve customer’s need for food laundry and house hold products. The wide range
of product mix carried by these stores make them a favorite retail outlet.

(f) Discount stores: Discount stores are the ones that sell standard merchandise at lower prize
than conventional merchants by accepting lower margins but pushing for higher sales volume.

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(g)Convenience store: These are generally food stores that are much smaller in size than in
supermarkets. They are conveniently located in residential areas. Due to a high degree of
personalized service and home delivery by store clerk, these stores fill in a very important need
of a house wife.

(h) Speciality store: These are ones that carry a narrow product line with a deep assortment within
that line. According to some marketing thinkers, the future scenario belongs to super speciality
store as they provide increasing opportunities for market segmentation, focused marketing,
and creation of brand equity.

5.6 FACTORS INFLUENCING CHOICE OF DISTRIBUTION CHANNEL:

It is very important to select a channel for the distribution of goods and services to the ultimate
consumers in an effective way. The marketer has to select the most suitable channel. While
selecting the channel of distribution, the marketer has to consider the following factors:

1. Nature of Product: The selected channel must cope up perish ability of the product. If a
commodity is perishable, the producer prefer to employs few middlemen. For durable and
standardized goods, longer and diversified channel may be necessary. If the unit value is low
, intensive distribution is suggested. If the product is highly technical, manufacture is forced
to sell directly, if it is not highly technical, intensive distribution can be selected. Seasonal
products are marketed through wholesalers.
2. Nature of market: If the market is a consumer market, then retailer is essential. If it is an
industrial market, we can avoid retailer. If consumers are widely scattered large number of
middlemen are required. When consumers purchase frequently, more buyer seller contacts
are needed and middlemen are suggested.
3. Competitors’ Channel: The distribution channel used by the competitors will influence the
channel selection. There is nothing wrong in copying the channel strategy of the competitor
if it is a right one.
4. The financial ability of channel members: Before selecting the channel, the manufacture
has to think about the financial soundness of the channel members. In most of the case
financial assistance are required to the channel members in the form of liberal credit facilities
and direct financing.
5. The Company’s financial position: A company with a strong financial background can
develop its own channel structure. Then there is no need to depend other channel
intermediaries to market their product.
6. Cost of Channel: The cost of each channel may be estimated on the basis of unit sale. The
best type of channel which gives a low unit cost of marketing may be selected.
7. Economic factors: The economic conditions prevailing in he country have bearing on
channel selection decision. During the period of boom, it is better to depend channels
directly. During the periods of deflation direct relation with the consumers are desirable.
8. The legal restrictions: Before giving the final shape to channels of distribution, we have to
consider the existing legal provisions of the various Acts. For eg. MRTP Act prevent

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channel arrangements that tend to lessen competition, create monopoly and those are
objectionable to the very public interest.
9. Marketing policy of the company: The marketing policy of the company have a greater
and deeper bearing on the channel choice. The marketing policies relating to channels of
distribution are advertising, sales promotion, delivery, after sale service and pricing. A
company has a heavy budget on advertising and sales promotion, the channel selected is
bound to be direct as it requires a few layers of people to push the product.

5.7 ELECTRONIC MARKETING

EMAIL MARKETING
It is a form of direct marketing which uses electronic mail as a means of communicating
commercial or fund-raising messages to an audience. In its broadest sense, every email sent to a
potential or current customer could be considered email marketing. However, the term is usually
used to refer to:

 sending email messages with the purpose of enhancing the relationship of a merchant with its
current or previous customers, to encourage customer loyalty and repeat business,
 sending email messages with the purpose of acquiring new customers or convincing current
customers to purchase something immediately,
 adding advertisements to email messages sent by other companies to their customers, and
 sending email messages over the Internet, as email did and does exist outside the Internet
(e.g., network email and FIDO).
INTERNET MARKETING
It is also known as digital marketing, web marketing, online marketing,search
marketing or e-marketing, is referred to as the marketing (generally promotion) of products or
services over the Internet. iMarketing is used as an abbreviated form for Internet Marketing.
 Internet marketing is considered to be broad in scope because it not only refers
to marketing on the Internet, but also includes marketing done via e-mail and wireless
media. Digital customer data and electronic customer relationship management (ECRM)
systems are also often grouped together under internet marketing.
 Internet marketing ties together the creative and technical aspects of the Internet,
including design, development, advertising, and sales. Internet marketing also refers to
the placement of media along many different stages of the customer engagement cycle
through search engine marketing (SEM), search engine optimization (SEO), banner ads on
specific websites, email marketing, mobile advertising, and Web 2.0 strategies.
 In 2008, The New York Times, working with comScore, published an initial estimate to
quantify the user data collected by large Internet-based companies. Counting four types
of interactions with company websites in addition to the hits from advertisements served
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from advertising networks, the authors found that the potential for collecting data was up
to 2,500 times per user per month.

5.9 TRADITIONAL MARKETING VS E- MARKETING

Marketing has pretty much been around forever in one form or another. Since the day
when humans first started trading whatever it was that they first traded, marketing was there.
Marketing was the stories they used to convince other humans to trade. Humans have come a
long way since then, (Well, we like to think we have) and marketing has too.

The methods of marketing have changed and improved, and we've become a lot more
efficient at telling our stories and getting our marketing messages out there. E Marketing is the
product of the meeting between modern communication technologies and the age-old marketing
principles that humans have always applied.

THE BENEFITS OF E-MARKETING OVER TRADITIONAL MARKETING

 Reach
The nature of the internet means businesses now have a truly global reach. While
traditional media costs limit this kind of reach to huge multinationals, eMarketing opens up
new avenues for smaller businesses, on a much smaller budget, to access potential consumers
from all over the world.
 Scope
Internet marketing allows the marketer to reach consumers in a wide range of ways
and enables them to offer a wide range of products and services. eMarketing includes,
among other things, information management, public relations, customer service and sales.
With the range of new technologies becoming available all the time, this scope can only grow.
 Interactivity
Whereas traditional marketing is largely about getting a brand's message out there,
eMarketing facilitates conversations between companies and consumers. With a two-way
communication channel, companies can feed off of the responses of their consumers, making them
more dynamic and adaptive.
 Immediacy
Internet marketing is able to, in ways never before imagined, provide an immediate
impact. Imagine you're reading your favorite magazine. You see a double-page advert for
some new product or service, maybe BMW's latest luxury sedan or Apple's latest iPod
offering. With this kind of traditional media, it's not that easy for you, the consumer, to take
the step from hearing about a product to actual acquisition.
With e Marketing, it’s easy to make that step as simple as possible, meaning that
within a few short clicks you could have booked a test drive or ordered the iPod. And all of
this can happen regardless of normal office hours. Effectively, Internet marketing makes
business hours 24 hours per day, 7 days per week for every week of the year.

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By closing the gap between providing information and eliciting a consumer reaction,
the consumer's buying cycle is speeded up and advertising spend can go much further in
creating immediate leads.
 Demographics and Targeting
Generally speaking, the demographics of the Internet are a marketer's dream. Internet
users, considered as a group, have greater buying power and could perhaps be considered
as a population group skewed towards the middle-classes.
Buying power is not all though. The nature of the Internet is such that its users will
tend to organise themselves into far more focussed groupings. Savvy marketers who know
where to look can quite easily find access to the niche markets they wish to target. Marketing
messages are most effective when they are presented directly to the audience most likely to
be interested. The Internet creates the perfect environment for niche marketing to targeted
groups.
 Adaptivity and Closed Loop Marketing
Closed Loop Marketing requires the constant measurement and analysis of the
results of marketing initiatives. By continuously tracking the response and effectiveness of a
campaign, the marketer can be far more dynamic in adapting to consumers' wants and needs.
With e Marketing, responses can be analyzed in real-time and campaigns can be
tweaked continuously. Combined with the immediacy of the Internet as a medium, this means
that there's minimal advertising spend wasted on less than effective campaigns.
Maximum marketing efficiency from e Marketing creates new opportunities to seize
strategic competitive advantages. The combination of all these factors results in an improved
ROI and ultimately, more customers, happier customers and an improved bottom line.

5.9 E- ADVERTISING
E-advertising is defined as the placement of electronic messages on a website or in e-mail to:

 Generate awareness for a brand

 Stimulate interest/preference for a product or service
 Provide the means to contact the advertiser for information to make a purchase
"E-advertising" is unique in that it can provide a one-tool process from introduction of a
product to close of sale. Traditional advertising requires that the consumer take some action to
make a purchase… call a phone number, mail a coupon, go into a store, etc. Electronic advertising
allows a company to develop a tool capable of closing the sale by offering a "click here" button…
the consumer need never get out of their chair.

The Web has become a pathway through multiple access points created to allow
consumers to compare goods and services from one company to the next - with the click of a
mouse. The ease of information flow has required some retailers and service organizations to re-
think the way that they distribute information about their product, thus requiring integration
between traditional and interactive advertising and marketing techniques.

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